Cause & Effect: If Banks Build It, Will Customers Come?

Banks that provide or build out advanced functions will encourage customers to adopt an increasing number of new tools, leading to higher profits in the long term.

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that customers who adopt digital banking and develop into active users also become more profitable.

Digital banking tools encourage customer behavioral changes that benefit banks. Offering remote deposit technology can allow financial institutions to create a more engaged experience for their customers and alter their banking behavior. For example, banks may find that customers that use Remote Deposit Capture (RDC) lead to increased deposits due to the convenience of the service and the fact that it incorporates familiar technology. A 2012 Javelin Strategy & Research study mentioned that more than one in four consumers found mobile deposit desirable or very desirable and about 80% of consumers who desired mobile RDC already actively used their mobile phones to take photos.

As customers rely on digital tools for one function, they are primed to move to another. Financial services can seize on this opportunity by actively cross-promoting their offerings to customers who might not be otherwise inclined to adopt new technologies.

Financial services providers can also build a more digitally active customer base by raising awareness of their online and mobile offerings. Banks that are already fully equipped with the latest technologies and digital offerings can inform users about these services through multiple touch-points, including personalized emails, banners with customized offers, and automatic prompts that foster additional transactions when customers are logged into a bank's website or mobile app.

Let’s take person-to-person (P2P) payments. P2P payments are another digital payment option for customers to make a quick payment transaction to other individuals without writing a check or even setting up an additional payee. As the ease and convenience provided by P2P payments nicely compliments other digital payment solutions, cross-promoting these complimentary solutions together can have a powerful impact. In fact, according to a 2014 Accenture study, 51% of banking customers in North America want their bank to proactively recommend products and services for their financial needs. Among those interested in these services, 55% say that it would strongly increase their loyalty to the bank. Alerting customers to the benefits of P2P or similar services through log-in alerts, emails, and additional marketing can drive a large increase in adoption and ultimately increase customer devotion.

The evidence suggests that banks that provide or build out advanced functions will encourage customers to adopt an increasing number of new tools, leading to higher profits in the long term. A 2013 Gallup study showed that customers who are fully engaged bring $402 in additional revenue per year to their primary bank compared with those who are actively disengaged. Specifically, consumers comfortable using digital tools for a variety of routine banking functions can be directly linked to higher retention rates, debit card usage, login activity, and account ownership.

Non-digital customers still matter -- but the growth is clearly on the other side of the coin. Once a customer moves online, the more profitable they become. The opportunity then lies in keeping those customers engaged with a breadth and depth of online and mobile offerings supported by targeted marketing programs that drive adoption and active use.

Jason Weinick is Manager of Analytics with Digital Insight. In this role, he leads the initiative on client profitability analyses, providing banks and credit unions a valuable in-depth look into the value of the online channel. Jason's background includes 15 years of ... View Full Bio

There's no doubt that banks need rich digital channels to attract and keep their customers. But if they don't ditch some of the legacy brick-and-mortar costs, it seems like more costs to get the same profits.

We probably will see more efforts to make the branch a place where customers can become more digital. I've heard a number of experts posit that branches are going to evolve into place focused more on consultation and education, less on transactions. So I don't think it will just be reducing the number of branches (which definitely has to happen there are way too many), but also changing the function of the branch. Of course, given how pendulums swing, there probably will be someone who comes along and thinks there's an opportunity for a completely analog/non-digital branch, to cater to those people who can't or won't do digital.

We used to believe that account integrity depended on a small piece of pater, a check, being moved from the customer's possession into the bank. Now that transaction can be conducted logically and in a variety of logical ways over the air waves. Like the paper itself, the bricks and mortar of the bank will also fade in importance. (But I still like my branch.)

Branches will no doubt have to recreate themselves to become an epicenter of intelligent cross-selling, but consider this. Over 75% of mobile banking consumers are Generation Y and Generation X, who are likely the prime consumers to be sold profitable banking products. If these consumers are migrating towards self-service channels, such as mobile remote deposit, there is a concern that the majority of in-branch consumers will be consumers who don't necessarily have a need for a mortgage or auto-loan. Financial Institutions shouldn't consider touch points as competitors, but rather create a holistic view of reaching their consumers anywhere anytime. I was recently reading an article written in 2006 which stated "As soon as someone provides us with a simple remote check deposit-capture service, we'll rarely set foot in a branch again." Although branch openings have diminished over the years, 8 years after that article was written, the brick and mortar footprint remains strong.